Paves the Way for PMI
to Seize the Substantial Opportunity for IQOS, the World’s Leading
Smoke-Free Product, in the U.S. – The World’s Largest Smoke-Free
Market
Regulatory News:
Philip Morris International Inc. (PMI) (NYSE: PM) today
announced an agreement with Altria Group, Inc. (Altria) to end the
companies’ commercial relationship covering IQOS in the U.S. as of
April 30, 2024. Thereafter, PMI will have the full rights to
commercialize IQOS in the U.S. As part of the agreement, PMI will
pay a total cash consideration of $2.7 billion, of which $1.0
billion was paid at the inception of the agreement using available
cash. The remaining $1.7 billion, plus interest, will be paid by
July 2023 at the latest.
The original agreement between the two companies, which
established a roadmap for the commercialization of heat-not-burn
products in the U.S., was announced in 2013 and accounted for
Altria’s ownership of certain U.S. intellectual property rights
related to the IQOS technology that were developed prior to PMI’s
2008 spin-off. Following IQOS’s authorization for sale in the U.S.
in 2019, the agreement covered an initial 5-year commercialization
term for the product through April 2024, with potential renewal –
subject to certain performance milestones – covering a second
5-year term through April 2029.
“Today marks another historic milestone in our journey towards a
smoke-free future,” said Jacek Olczak, Chief Executive Officer.
“This agreement gives PMI full U.S. commercialization rights to
IQOS within approximately 18 months and provides a clear path to
fulfilling the product’s full potential in the world’s largest
smoke-free market, leveraging PMI’s full strategic and financial
commitment to IQOS’s success. The agreement also avoids what could
have been an uncertain and protracted legal process that would have
severely hindered the fast deployment of IQOS in the U.S.”
IQOS is the world’s leading smoke-free product, with strong
growth achieved across a wide range of international markets. It
established the innovative heat-not-burn category, driving its
growth and becoming a $9 billion annual net revenue business
outside the U.S. in 2021, some six years after its initial
commercial launch. In this short time, the product has achieved
double-digit national shares across a number of Asian, European and
other markets – all with varying demographic profiles and adult
smoker taste preferences.
The company views IQOS as a very substantial growth opportunity
in the U.S. smoke-free market, whose retail value represents around
60% of that for the rest of the world, excluding China. The U.S.
opportunity for IQOS is particularly significant given the clear
demand from American adult smokers for credible smoke-free
alternatives to cigarettes and the limited success to date of
current offerings to fully switch adult smokers away from
cigarettes. Furthermore, in the U.S., there are ample opportunities
to build adult smoker awareness and understanding of smoke-free
products, something that is particularly true for IQOS given its
Modified Risk Tobacco Product (MRTP) authorizations.
“We are ready to invest behind IQOS to bring it to market at
scale across the U.S., leveraging the proven capabilities of our
outstanding commercial engine, which we will deploy domestically
during the transition period to April 30, 2024,” Mr. Olczak
continued. “The route-to-market is clear given the well-established
distribution and retail channels in the U.S., and we are well
prepared to proceed autonomously to develop IQOS and the rest of
our smoke-free portfolio should the offer for Swedish Match
fail.”
PMI is already well advanced in its plans for the
commercialization of IQOS in the U.S., as it prepares for domestic
manufacturing, important regulatory submissions – including
Pre-market Tobacco Applications (PMTAs) for ILUMA in the second
half of 2023 – as well as the development of U.S. sales,
distribution, retail, consumer engagement and support capabilities
over the next 18 months.
“Our commercial plans include full-scale launches in key cities
and regions with rapid progression to a national presence, and we
believe that IQOS heat-not-burn products could account for around
10% of total U.S. cigarette and heated tobacco unit volume by 2030.
We estimate the industry profit pool for the U.S. at over $20
billion in 2021, underpinned by superior per-unit margin compared
to PMI’s international market average. We see an accelerated path
to profitability with an attractive payback period enhanced by the
absence of a PMI domestic combustible tobacco business.”
“We look forward to replicating our international success in
fully switching adults who would otherwise continue to smoke, to
better alternatives. According to 2022 U.S. Center for Disease
Control and Prevention (CDC) data, the U.S. is home to around 31
million adult smokers, and I believe that IQOS – the only inhalable
smoke-free nicotine product to have received an MRTP Authorization
from the U.S. Food and Drug Administration and thus be recognized
as appropriate for the promotion of public health – can play a
meaningful role in further reducing smoking rates.”
Barclays served as financial advisor to PMI on the
transaction.
Forward-Looking and Cautionary
Statements This press release contains projections of future
results and other forward-looking statements, including statements
regarding the agreement with Altria and the benefits of the
transaction; business strategy, expectations, and results;
commercial and operational plans and execution; regulatory
approvals; and U.S. smoke-free market growth and opportunities.
Achievement of future results is subject to risks, uncertainties
and inaccurate assumptions. In the event that risks or
uncertainties materialize, or underlying assumptions prove
inaccurate, actual results and outcomes could vary materially from
those contained in such forward-looking statements. Pursuant to the
“safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, PMI is identifying important factors that,
individually or in the aggregate, could cause actual results and
outcomes to differ materially from those contained in any
forward-looking statements made by PMI.
Important factors that could cause actual results to differ
materially from those indicated by forward-looking statements
include risks and uncertainties related to: the possibility that
expected benefits related to recent or pending transactions,
including the agreement with Altria, may not materialize as
expected; regulatory approvals required for the transaction not
being timely obtained, if obtained at all, or being obtained
subject to conditions; excise tax increases and discriminatory tax
structures; increasing marketing and regulatory restrictions that
could reduce our competitiveness, eliminate our ability to
communicate with adult consumers, or ban certain of our products in
certain markets or countries; health concerns relating to the use
of tobacco and other nicotine-containing products and exposure to
environmental tobacco smoke; litigation related to tobacco use and
intellectual property; intense competition; the effects of global
and individual country economic, regulatory and political
developments, natural disasters and conflicts; the impact and
consequences of Russia's invasion of Ukraine; changes in adult
smoker behavior; the impact of COVID-19 on PMI's business; lost
revenues as a result of counterfeiting, contraband and cross-border
purchases; governmental investigations; unfavorable currency
exchange rates and currency devaluations, and limitations on the
ability to repatriate funds; adverse changes in applicable
corporate tax laws; adverse changes in the cost, availability, and
quality of tobacco and other agricultural products and raw
materials, as well as components and materials for our electronic
devices; and the integrity of its information systems and
effectiveness of its data privacy policies. PMI's future
profitability may also be adversely affected should it be
unsuccessful in its attempts to produce and commercialize
reduced-risk products or if regulation or taxation do not
differentiate between such products and cigarettes; if it is unable
to successfully introduce new products, promote brand equity, enter
new markets or improve its margins through increased prices and
productivity gains; if it is unable to expand its brand portfolio
internally or through acquisitions and the development of strategic
business relationships; or if it is unable to attract and retain
the best global talent, including women or diverse candidates.
Future results are also subject to the lower predictability of our
reduced-risk product category's performance.
PMI is further subject to other risks detailed from time to time
in its publicly filed documents, including PMI's Annual Report on
Form 10-K for the fourth quarter and year ended December 31, 2021,
the Form 10-Q for the quarter ended June 30, 2022, and the Form
10-Q for the quarter ended September 30, 2022, which will be filed
in the coming days. PMI cautions that the foregoing list of
important factors is not a complete discussion of all potential
risks and uncertainties. PMI does not undertake to update any
forward-looking statement that it may make from time to time,
except in the normal course of its public disclosure
obligations.
Philip Morris International: Delivering a
Smoke-Free Future Philip Morris International (PMI) is a
leading international tobacco company working to deliver a
smoke-free future and evolving its portfolio for the long term to
include products outside of the tobacco and nicotine sector. The
company’s current product portfolio primarily consists of
cigarettes and smoke-free products, including heat-not-burn, vapor
and oral nicotine products, which are sold in markets outside the
U.S. Since 2008, PMI has invested more than USD 9 billion to
develop, scientifically substantiate and commercialize innovative
smoke-free products for adults who would otherwise continue to
smoke, with the goal of completely ending the sale of cigarettes.
This includes the building of world-class scientific assessment
capabilities, notably in the areas of pre-clinical systems
toxicology, clinical and behavioral research, as well as
post-market studies. The U.S. Food and Drug Administration (FDA)
has authorized the marketing of versions of PMI’s IQOS Platform 1
devices and consumables as a Modified Risk Tobacco Products
(MRTPs), finding that an exposure modification orders for these
products are appropriate to promote the public health. As of
September 30, 2022, excluding Russia and Ukraine, PMI's smoke-free
products are available for sale in 70 markets, and PMI estimates
that approximately 13.5 million adults around the world had already
switched to IQOS and stopped smoking. With a strong foundation and
significant expertise in life sciences, in February 2021, PMI
announced its ambition to expand into wellness and healthcare areas
and deliver innovative products and solutions that aim to address
unmet consumer and patient needs. For more information, please
visit www.pmi.com and www.pmiscience.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20221019006097/en/
Philip Morris International Investor Relations: New York:
+1 (917) 663 2233 Lausanne: +41 (0)58 242 4666
InvestorRelations@pmi.com
Media: Lausanne: +41 (0)58 242 4500 David.Fraser@pmi.com
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